Wealth management platform operator iFast Corporation&rsquo s 2QFY2024 ended June 30 earnings were a strong beat thanks to stronger Singapore inflows and trading volumes, coupled with a narrower loss from UK digital banking operations.

 

iFast announced on July 25 its 2QFY2024 patmi of $16 million, up 11% q-o-q and a staggering 346% y-o-y from just $3.6 million in 2QFY2023.

 

This is 15% above CGS International (CGSI) analyst Andrea Choong&rsquo s forecast and 11% above consensus. iFast&rsquo s 2QFY2024 net profit also formed 54% of Choong&rsquo s FY2024 estimates.

 

iFast declared an interim 1.5 cent dividend per share (DPS) for the quarter, up from 1.1 cents this time last year. For 1QFY2024, iFast had declared a first interim dividend of 1.3 cents per share, up from 1 cent in 1QFY2023.

 

On a fully diluted basis, earnings per share was 5.38 cents in 2QFY2024.

 

Choong has raised her DPS forecast to 6.2 cents in FY2024, up from 5.4 cents previously, &ldquo on the back of its stronger and more consistent earnings profile&rdquo .

 

Already bullish, Choong&rsquo s target price of $9.50, raised in a July 26 note from $9.10 previously, still remains on the lower end of analysts&rsquo fair value estimates for the stock.

 

On the other end of the scale sits UBS Global Research and its analysts, Aakash Rawat and Benjamin Tan. iFast&rsquo s 2QFY2024 net profit was some 20% above their estimates, and &ldquo another set of strong results&rdquo has earned iFast their praises in a July 26 note.

 

The UBS analysts have maintained their &ldquo buy&rdquo call and $10.50 target price since February, when iFast reported FY2023 net profit figures that were 50% ahead of UBS&rsquo s estimates.

 

In November 2023, the bullish Rawat and Tan nearly doubled their target price from $6.50 to $10. Hong Kong business &lsquo stable&rsquo CGSI&rsquo s Choong notes that contributions from iFast&rsquo s Hong Kong business, touted as a major driver, were stable q-o-q.

 

There, iFast is one of the builders of the mandatory ePension platform project. The Mandatory Provident Fund Authority (MPFA) announced on June 26 that the onboarding of trustees is on track and has commenced with two trustees: YF Life and China Life.

 

According to iFast&rsquo s management, revenue recognition from the ePension project may ramp up only towards 4QFY2024, then more significantly in FY2025, which could also include contributions from the commencement of its occupational retirement schemes (ORSO) platform project.

 

With ePension contributions trickling in steadily, Choong has raised her assumptions on contributions from Hong Kong until FY2026 &ldquo to account for management&rsquo s conservatism on this segment&rdquo . &ldquo Notably, the two trustees onboarded accounted for only 1% of total MPF NAV as at the end of June. There are another 10 trustees to be onboarded over 4QFY2024 to 4QFY2025.&rdquo

 

The ePension project&rsquo s profit before tax was higher than expected, according to the UBS analysts, who estimate a figure between $11 million and $11.5 million. &ldquo With this, the entire Hong Kong business, [which also includes the] core wealth management business, has already achieved some 62% of iFast&rsquo s full-year target [of] HK$250 million, [or] $43 million, implying potential upside risk to the full-year guidance,&rdquo write Rawat and Tan.

 

Losses narrow in the UK

 

Over in the UK, iFast Global Bank&rsquo s customer deposits rose to $646 million in 2QFY2024, up 25% q-o-q. Choong notes that the digital bank had ended 2023 wIth just $359 million in customer deposits.

 

In 2QFY2024, the bank&rsquo s losses narrowed to $1.6 million, improving from a $2.3 million loss in the first quarter. The improvement was due to a stronger pickup in its EzRemit business.

 

UBS says iFast&rsquo s banking business in the UK &ldquo continues to make good progress&rdquo . &ldquo Notably, the bank also launched its first lending product in 2QFY2024 &mdash margin finance lending to iFast&rsquo s platform customers in Singapore &mdash which could potentially drive higher net interest income in the future.&rdquo

 

Rawat and Tan say this is &ldquo encouraging&rdquo as iFast has &ldquo historically adopted a conservative stance&rdquo . The vast majority of its deposits are placed with the central bank, and the rest are in sovereign bonds and investment-grade bonds.

 

At a July 26 briefing, iFast CEO Lim Chung Chun reiterated the bank&rsquo s target of breaking even in 4QFY2024. However, while iFast aims to eventually offer full-fledged lending products, Lim says balance sheet strength remains a key priority.

 

In June, iFast increased its stake in iFast Global Bank from 91.3% to 93.1%. The total consideration for this 1.8% stake was GBP15 million ($25.91 million).

 

China remains a drag

 

Taken together with 1QFY2024, iFast&rsquo s 1HFY2024 revenue and net profit grew 58% y-o-y and 365% y-o-y to $162.8 million and $30.5 million respectively.

 

Both the UK bank and iFast&rsquo s mainland China operations continued to be loss-making in 1HFY2024, with net losses of $3.9 million and $3.4 million respectively.

 

iFast&rsquo s core business is active in Singapore, Hong Kong, Malaysia, China and the UK. It exited India in 2QFY2022, posting a net loss of $2.69 million that quarter due to a one-off impairment of $5.2 million from its associate, iFast India Holdings.

 

iFast&rsquo s mainland China business has been loss-making since it entered the market in FY2014. Losses widened to a peak of $7.19 million in FY2023, prompting shareholders to ask if management would consider exiting the market like it had in India.

 

&ldquo We have to say that we have done poorly for the iFast China division so far,&rdquo said Lim at the latest annual general meeting on April 26. &ldquo At this point in time, we are actively working on cost reduction and thereby reducing the losses. Our growth strategy revolves around offshore Chinese monies, while for onshore business, we take a defensive stance and focus on reducing costs and losses. Despite the challenges, we will not give up and continue to build the business. In the meantime, we will take a defensive position.&rdquo

 

iFast&rsquo s Hong Kong business made a profit of $23.82 million in FY2023, just behind Singapore&rsquo s $25.20 million. As of the end of 1HFY2024, Hong Kong&rsquo s profits have overtaken Singapore&rsquo s at $26.57 million versus $17.14 million.

 

iFast&rsquo s mainland China business, meanwhile, logged $3.38 million in losses for 1HFY2024.

 

Moving forward, DBS Group Research analyst Ling Lee Keng thinks iFast is on track to benefit from operating leverage. &ldquo Net margin for the group improved to 19.1% in 2QFY2024 from 18.4% in 1QFY2024 and 11.0% in FY2023, as the group moves towards obtaining operational leverage with higher revenue.&rdquo Ling&rsquo s &ldquo buy&rdquo call and $9.57 target price stand between those of her peers.

 

In a July 25 note, Ling says iFast&rsquo s net profit has been growing much faster compared to revenue growth in recent quarters. &ldquo Hence, we can expect the group to obtain operating leverage with its scalable business model, likely by [the] end of FY2025.&rdquo

 

Meanwhile, UOB Kay Hian Research analysts Heidi Mo and John Cheong are maintaining " hold" on iFast with a higher target price of $8.03, up from $7.64 previously. This is the lowest fair value estimate among research houses covering the stock.

 

In a July 29 note, Mo and Cheong say their target price is based on a 25 times FY2025 earnings per share valuation. " This is pegged to 1.0 standard deviation below its historical mean, as valuations appear rich.   The stock has a lower ROE yet trades at a lofty 40 times FY2024 PE in comparison to its peers&rsquo average of 23 times."

Revenue in the period was up 63.2% to S$84 million from a year ago

 

DIGITAL bank and wealth management platform iFast Corporation : AIY -2.2% reported a 346.1 per cent rise in second-quarter earnings to S$16 million, from S$3.6 million in Q2 2023.

 

In a bourse filing on Thursday (Jul 25), the company reported that revenue for the same period also rose. It was up 63.2 per cent to S$84 million from S$51.5 million a year prior.

 

Earnings for the first half of 2024 saw a 364.8 per cent surge to S$30.5 million, from S$6.6 million in H1 2023.

 

Revenue rose in tandem for the same period, up 58.1 per cent to S$162.8 million from S$102.9 million a year prior.

 

This was mainly driven by contributions from the ePension division in Hong Kong, as well as improvements across iFast&rsquo s wealth management platform business.

 

The directors of iFast have proposed a dividend of S$0.015 per share. The books will close on Aug 7 and the dividend will be paid out on Aug 21.

 

Net inflows of S$1.5 billion for the first half of 2024 helped to grow iFast&rsquo s assets under administration to a record high of S$22.4 billion as at Jun 30, an 18.9 per cent year-on-year increase. Deposits for iFast Global Bank grew to S$642.6 million as at Jun 30.

 

The company maintains regulatory ratios above the minimum requirement.

 

The liquidity coverage ratio for the bank stood at 792 per cent, the net stable funding ratio was at 315 per cent, and the total capital ratio stood at 31 per cent as at Jun 30.

 

Revenue for non-banking operations in H1 2024 rose 59 per cent to S$158.8 million from S$99.9 million in H1 2023, comprising the bulk of revenue contribution for iFast.

 

The ePension division in Hong Kong will be an important growth driver for iFast for 2024 and 2025, with Hong Kong overtaking Singapore in earnings and revenue contribution for the first half this year. The company also expects iFast Global Bank to become an important growth driver in 2025 and beyond.